What is the won-dollar cross-currency basis?

A deviation from covered interest parity, measuring how far the cost of obtaining dollars through the swap market exceeds what the interest differential alone would imply.

How does the cross-currency basis relate to covered interest parity?

Covered interest parity is the no-arbitrage condition that borrowing dollars directly must cost the same as borrowing won, hedging the currency risk fully and swapping into dollars. A persistently non-zero basis means something is preventing that arbitrage.

What does a widening cross-currency basis indicate?

That dollar funding has become scarce, or that the balance sheet capacity of the intermediaries who would run the arbitrage has contracted. It is a standard gauge of cross-border funding pressure.

KRFXCCB5

South Korean Won to U.S. Dollar 5-Year Cross-Currency Basis

Name: South Korean Won to U.S. Dollar 5-Year Cross-Currency Basis
Published: 2002-02-21
License: https://creativecommons.org/licenses/by-nc-nd/4.0/

-43.75bp

As of 2026-09-09 · Updated daily

2025-09-092026-09-09

What does the cross-currency basis measure?

In theory it should cost the same to borrow dollars directly as to borrow won, hedge the currency risk fully, and swap into dollars. The basis is the wedge between those two costs. The deeper it goes negative, the larger the premium on raising dollars through the swap market, and Korea structurally sits on the negative side.

The two lines are the paired rates, and the shaded gap between them is their difference, which is the indicator's value.

How do you read a deepening negative?

A basis deepening into negative territory signals dollar funding tightening, and the short maturities widen most sharply on acute funding stress. The longer maturities carry the structural demand imbalance more than the cycle, so reading the maturities together separates the acute signal from the structural one. A shallowing means the pressure is easing.

The gap narrows and then widens again. The narrowing and widening of the difference is itself the signal.

How does it matter for financial markets?

For those running dollar assets from a won base, hedging costs hang directly on this value, and for those able to supply dollars to the swap market it sets the reward. Read beside dollar liquidity gauges and the exchange-rate tail-risk gauge, it helps separate passing friction from a genuine dollar shortage.

When the two lines cross, the sign of the difference flips. Such sign flips are the regime turns markets watch.

Overview

The structural, five-year component, set by standing hedging demand and limited dealer capacity.

Definition

The cross-currency basis is the deviation from covered interest parity (CIP) in the market for swapping Korean won into U.S. dollars, where under CIP the basis is zero and a negative basis means synthetic dollar funding carries a premium over direct borrowing (Du, Tepper, and Verdelhan 2018). This series is the basis at the 5-year tenor, which captures the medium-term, structural component of the basis rather than transient short-horizon funding spikes.

At the 5-year horizon the basis reflects the persistent imbalance between standing hedging demand for dollars and the costly balance-sheet capacity that supplies it (Sushko et al. 2016). It therefore moves more slowly than the 1-year and is a cleaner read on the structural negative basis than on acute funding stress. It is reported in basis points.

Methodology

The basis is a direct difference of two quoted swap rates at the matched tenor, with no estimation or model layer.

(1) Mid pricing. The cross-currency interest-rate swap (CCIRS) and the won interest-rate swap (IRS) are reduced to mid quotes,

p^{\text{mid}}_{t,\tau} = \tfrac{1}{2}\left(p^{\text{offer}}_{t,\tau} + p^{\text{bid}}_{t,\tau}\right).

(2) Basis construction. The basis is the CCIRS mid less the IRS mid at the same tenor,

\text{basis}_{t,\tau} = \text{CCIRS}^{\text{mid}}_{t,\tau} - \text{IRS}^{\text{mid}}_{t,\tau}.

Both legs are quoted semiannual on an Actual/365 day count, so no day-count or compounding conversion is applied.

(3) Sign and units. Under covered interest parity the basis is zero, and a negative value is the CIP deviation signalling a premium on synthetic dollar funding. Stored in percentage points, the series is displayed in basis points,

\text{basis}^{\text{bp}}_{t,\tau} = 100 \times \text{basis}_{t,\tau},

so lower readings indicate tighter dollar funding.

Applications in Economics

The 5-year basis is the medium-term structural gauge. It strips out the transient funding spikes that dominate the 1-year tenor and instead reflects the standing demand imbalance (Sushko et al. 2016). In that imbalance, hedging demand for forward dollars meets a constrained supply of intermediary balance sheet, pinning the basis below zero across the cycle.

Korea's structural negative basis at this horizon is rooted in long-horizon institutional hedging. Economies with large positive net foreign assets carry standing FX-hedging demand that is negatively correlated with the basis, and Korea is among them (International Monetary Fund 2019). The persistence of medium-term deviations is owed to the same regulatory balance-sheet costs that prevent arbitrage from closing them (Du, Tepper, and Verdelhan 2018). This medium-term cross-section is governed by macrofinancial determinants rather than transient noise (Cerutti, Obstfeld, and Zhou 2021).

Read against the 1-year tenor, the 5-year basis isolates structural from cyclical pressure. A widening confined to the short end signals funding stress, while a move at the 5-year tenor signals a shift in the durable supply-demand balance for synthetic dollars.

Applications in Financial Markets

The 5-year basis drives the cost of longer-dated hedged dollar positions. Institutions rolling multi-year currency hedges pay or receive the basis over the life of the hedge, so its level feeds directly into the economics of long-horizon overseas investment and its hedging.

It is best read together with the 1-year basis to separate structural from short-term funding pressure, and with the 10-year tenor to complete the term-structure view of CIP deviations (Cerutti, Obstfeld, and Zhou 2021).

Statistical Tests

Over 5968 observations from 2002-02-21 to 2026-07-01, the unit-root reading of the five-year won-dollar cross-currency basis is ambiguous, since the Dickey and Fuller (1979) and Phillips and Perron (1988) tests reject a unit root at p = 0.0109 and p = 0.0002 while the Kwiatkowski et al. (1992) test also rejects stationarity at p < 0.01, the near-unit-root disagreement of a persistent bounded signal, so no clean order is assigned. On the level the first-order autocorrelation is 0.990 with an implied half-life of about 71.7 observations, a descriptive persistence summary and not an integration claim, the Ljung and Box (1978) portmanteau on the level rejects white noise at lags 10 and 20, Q = 54364.20 and Q = 102313.00 at p = 0.000 and p = 0.000, and the Bai and Perron (1998) procedure, by the Bai and Perron (2003) algorithm, finds 4 breaks in the mean at 2007-11-12, 2013-09-06, 2018-04-13, 2022-01-11 (Andrews 1993; Perron 1989).

This signal, the five-year won-dollar cross-currency basis, has no daily seasonal period, so the seasonal-unit-root and seasonal-stationarity machinery of Hylleberg et al. (1990) and Canova and Hansen (1995) is deliberately not run (Beaulieu and Miron 1992; Ghysels and Osborn 2001).

Key Figures

Key Figures — South Korean Won to U.S. Dollar 5-Year Cross-Currency Basis
Latest (bp)	-43.75 (2026-09-09)
Change from previous	−5.25 (2026-09-08)
Change over one year	−4.75 (2025-09-09)
Highest on record	43.00 (2005-11-14)
Lowest on record	-344.00 (2009-03-31)
Period covered	2002-02-21 – 2026-09-09
Observations	6030

Recent observations
Date	Value (bp)	Change
2026-09-09	-43.75	−5.25
2026-09-08	-38.50	0.00
2026-09-07	-38.50	+0.50
2026-09-04	-39.00	−1.75
2026-09-03	-37.25	+0.75
2026-09-02	-38.00	−2.25
2026-09-01	-35.75	+0.25
2026-08-31	-36.00	−0.50
2026-08-28	-35.50	−3.75
2026-08-27	-31.75	+2.25
2026-08-26	-34.00	+2.25
2026-08-25	-36.25	−0.50

Frequently Asked Questions

What is the won-dollar cross-currency basis?: A deviation from covered interest parity, measuring how far the cost of obtaining dollars through the swap market exceeds what the interest differential alone would imply.
How does the cross-currency basis relate to covered interest parity?: Covered interest parity is the no-arbitrage condition that borrowing dollars directly must cost the same as borrowing won, hedging the currency risk fully and swapping into dollars. A persistently non-zero basis means something is preventing that arbitrage.
What does a widening cross-currency basis indicate?: That dollar funding has become scarce, or that the balance sheet capacity of the intermediaries who would run the arbitrage has contracted. It is a standard gauge of cross-border funding pressure.